@Quicko @Jason_Castelino : In Year 1 , i have lots of Speculative trades + Positional ( delivery) , so i filled everything as business income; In year 2 , I have no speculative trade but only Positional(Delivery) trade : How should tax be filled in year 2 as capital gains or Business income?
@Jason_Castelino Bro…
First I really appreciate you taking your time in finding within trading limits to reduce FNO tax burden. Later I understood that sine you are CA in practice, you really worked well with tax & trading and found such a real-time practical solution.
I feel this solution can be well adapted by regular FNO traders. But as you said in the limitation, this may not make sense for FNO traders who can generate atleast 2% of their capital in the last week of expiry.
But I admire your way to think, try and presenting it here for discussions…
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Once your turnover exceeds Rs. 2 crores you are required to maintain books of accounts. So the question of presumptive income doesn’t even arise.
If you are going for presumptive taxation, then your turnover for the purpose of calculative presumptive profits will increase. So in this case you would be paying higher tax on STCG plus higher tax for presumptive income.
I wouldn’t recommend the above strategy, if you are going for presumptive taxation.
If there is clear change in the way you have traded in year 2, you can change the way you treat your income. But if a SCN is issued, you should be able to justify it. Income tax is a self assessment tax. We assess it on our own, by using the provisions of the Act. If you feel you will be able to justify your stand, then you can show it as STCG.
Probability of you getting a notice is as low as 0.01. Then you never know.
@Trading_143 @TradeXMaster
Thank you for your wonderful words of appreciation. I really put a lot of thought into this.
Yeah, this is just unique and really smart way.
I meant:
I want to go for presumptive taxation this year, since my turnover is less than 2 crore.
But next year, my turnover will probably be more than 2 crore. What should I do in that case?
As I understood, If I Keep on changing my methods (presumptive to STCG), i will get in trouble. So I need to stick with 1 method only, right?
So in this case, you recommend to go for STCG to be future safe, right? My capital will only increase year by year
For BTST go for STCG only.
About converting your presumptive income to STCG doesn’t make sense.
Lets say you have intraday turnover of 1cr. 6 percent of that would be 6lakhs.
Now if you go to convert this to STCG, your turnover will be even more than 1Cr and you have to apply 6 percent on that value. Plus you will have to pay STCG on the Income you converted to STCG.
Am not sure if either of us are following what the other is saying 
One more point that went against the assessee in this order: she had, in her returns for the previous AY (2006-07), offered all the profit from share sales as business income. The order said that she cannot just flip this and claim STCG for the same type of income in the next year. So this is one other thing to keep in mind if you wish to both do frequent trading and claim STCG.
I am referring to this point. Can I flip and report same type of income as “STCG” gain next year?
Because next year, My turnover will be more than 2 crore.
Here the point is, she showed all her STCG income (BTST and other short term capital gains too) also as business income. And in the following year she switched back to STCG. Are you referring to the same? If yes, then No. You shouldn’t be doing that.
From what I understand about your case, you were taking about BTST trades. You can show BTST as STCG in all years and intraday profits as speculative business income. This is the most beneficial way for you. If I am still missing something, let’s take this in private.
Hi
Amidst all this discussion on how to convert (or not) business income to STCG to take advantage of 30 odd percent taxation to 15%, I would like to ask something.
If the turnover is less than 2 (5) Cr, and the profit is more than 8%, why not take advantage of presumptive tax under section 44AD?
Let’s go for an example
FnO turnover 100 lac
Realised profit 20 lac, that is 20%.
One can declare income more than 8% as presumptive income to avail this facility.
Let’s declare income of 10lac that is 10%. Pay 30% tax that is 3 lacs on profit of 20 lacs that is 15%.
The very principle behind presumptive tax is that rest of your profits (20-10 lac)are presumed to be your expenses, and you are not supposed to keep a record of same, which you do when you go for audit, and is legally allowed.
If you go for audit, still you can claim expenses to be deducted from your profit of 20 lacs, but you have to keep record of your expenses and obviously it’s difficult to declare expenses of 10 lacs for FnO trading and defend it.
Am I missing anything here?
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Yes. You can go for presumptive taxation. I did mention in one of the above replies that it won’t be beneficial if you are going for 44AD. To quote the same…
May be I should edit my original post and add it in limitations.
On a different note, it’s always better to show actual income if its more than 6 percent of the turnover. When you apply 6 percent directly your total income disclosed is less than your actual income. As an Assessee I would want my total income to be high and tax liability to be low. There are many reasons for this and let’s not get into it.
This is just an additional professional take which most professionals advice. But having said that, there isn’t much harm if you declare income at 6percent.
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I have a doubt about selling your right. When shares are delivered to demat account, is it implied that the option was exercised and hence would it mean you are making a profit from intrinsic value of option on expiry day?
Intrinsic value has no relevance when physical delivery is made. Irrespective of the market price of the share, the stock will be delivered at the strike price.
The amount to premium received at the time of selling the option shall be retained by the seller.
hey @Jason_Castelino there was a recent article in Varsity
Attaching the relevant screenshot, I see for calculating profits the premium paid is considered in calculating cost of acquisition.
@nithin @Karthik Can you shed some light here ? Can we consider the premium paid for physically settled options as losses ?
Also as mentioned here
why does Zerodha show the premium paid as loss on console if in your example in the varsity article you are adding the premium as cost of acquisition for your physically settled stock ?
The example stated is given to understand the net effect. And the net effect is the same. But the head of income for IT purpose shall be different.
You have paid premium to buy the right and since you have not sold, it shall be considered as sold at 0. Profit is the difference between sell and buy. So the entire premium paid shall be considered as loss.
Since the option is exercised, as per contract you are supposed to buy it at the agreed Upton strike price. And that shall be considered as Cost of Acquisition.
Anyways let’s wait for the ones tagged in the post to reply.
@Jason_Castelino is right.
The net effect is the same. ON our P&L’s, we take the most conservative stance as per IT rules. You are free to take a more aggressive stance and change the P&L while filing your income tax returns. As long as you can convince the IT officer in case there was any scrutiny on your account.
Perhaps relevant -
"The department over the past few years has come across instances where individuals and entities indulged in pre-meditated F&O transactions to book false profits/losses.
In some cases, it found a significant portion of entities’ turnover was in reversal trades in stock options to create fake profits or losses.
“Such trades have been under scrutiny. The data has been shared with assessing officers across the country,” said an assessing officer in know.
To curb this, the department had launched “Project Falcon” in 2018-2019 to deal with such entities and detected tax evasion of nearly Rs 10,000 crore in 2019 and 2020, he added."
but you are eating away a good chunk of the savings by charging 0.25% brokerage on physically settled contracts by claiming it requires addition effort. What sort of additional effort is require that you charge 0.25% instead of flat 20 rs… and infact for cash equity delivery trades is totally free. This goes against the ethos of zerodha charging flat fees compared to traditional brokers charging a bomb. In a way you are trying to extract tollgate fees for traders doing this knowing well that since they are saving much they wont mind paying this extra amount. If someone buy 10% ITM call to shift profits from one segment to another, tax saved will be 1.5% of total notional value. of that you will take away 0.25%+GST=0.295 its almost 20% of the savings. Really this is not expected from you guys. I went into such detailed explaination just to show that 0.25% charges is really absurd and to me it really feels like you are trying to take a pie of the taxes saved.
Settlement of stocks F&O isn’t like settlement of equity delivery trades. The processes involved in the backend are entirely different and, as the note mentions, need additional effort and also introduce additional risk.
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You should consider lowering the fee to 5-10bps from 25bps. The whole point of trading with zerodha or the USP of zerodha is a flat fee irrespective of trade size. So this % fees comes as a shocker and that too 0.25% is quite large by industry standards. You should revisit this with your team and please evaluate the feasibility of reducing this.